How AI Is Impacting the Current European Market for Electricity Distribution Firms

Accurate electricity demand forecasting is vital for energy suppliers, Independent System Operators (ISOs), financial institutions, and other participants in electric energy markets, generation, transmission, and distribution. Forecasting the demand for energy is crucial for planning periodical operations and facility expansion in varying levels of the electricity sector—and providing reliable energy services to customers. 

When you add in the rise of renewable energy sources in Europe, such as wind and solar power, and an increased focus on energy efficiency—predicting consumer demand becomes even more of a challenge. This is the first of a pair of articles that will provide an overview of the European energy market which provides the context for the importance of demand forecasting for European electricity distribution companies.

How Is the European Electricity Trading Market Structured?

Imagine that a major energy company in the UK has a contract to supply a large industrial customer with a fixed amount of electricity per year. Due to an unexpected outage at one of its power plants, however, said company can’t meet the contracted amount for the year. 

To satisfy the contract, the energy company might turn to a trader, who is able to source the additional electricity from a renewable energy generator in a country such as Norway.

The trader then purchases the electricity from the generator at a fixed price before reselling it to the UK energy company at a slightly higher price. The UK energy company fulfills its contract and the trader is able to make a profit from the price difference between the purchase and sale of the electricity.

This entire transaction would take place on an exchange, such as the European Energy Exchange (EEX), which provides a platform for trading electricity and other sources of energy. The exchange works as a neutral intermediary—ensuring that the transaction is transparent and secure, and that the electricity is delivered to the UK energy company’s customer in a timely manner.

The goal of the aforementioned structure is clear:

• Make sure that all participants have access to reliable and affordable power 
• Provide incentives for innovation and efficiency in the sector 
• Allow producers to benefit from economies of scale 
• Promote competition and help keep prices low for consumers.

The electricity trading market in Europe is a highly competitive and dynamic sector, with many key players actively involved. By understanding how this intricate system works, it can help you make informed decisions when buying or selling power on the open market.

A key organization that coordinates the operation and development of Europe’s electricity transmission system is the European Network of Transmission System Operators for Electricity, or ENTSO-E.

ENTSO-E represents 39 electricity transmission system operators from 35 countries across Europe, thus extending beyond EU borders. Its mission is clear: 

Ensure the secure, reliable, and efficient operation of the European electricity system.

To achieve this mission, ENTSO-E performs a range of tasks, including:

• System operation: By coordinating the operation of the European electricity transmission system in real-time, ENTSO-E ensures that there is a balance between electricity supply and demand across the continent. This involves managing the physical flows of electricity between different countries and regions, and responding to unexpected events such as power plant outages or extreme weather conditions.
• Network development: Developing a 10-year network development plan (TYNDP), which identifies the investment needs and priorities for Europe’s electricity transmission system. The plan takes into account factors such as changing demand patterns, the growth of renewable energy, and the need for cross-border interconnections.
• Market integration: By working to integrate the various national electricity markets across Europe into a single, interconnected market, ENTSO-E harmonizes the rules and regulations governing the markets. They also develop cross-border trading mechanisms to allow electricity to flow freely between different countries and regions.
• Research and technical innovation: ENTSO-E also engages in research and innovation activities to support the development of approaches to enhance the performance and resilience of the European electricity system. They also provide technical know-how on transnational issues related to grid planning, construction, and operations and maintenance.

Which European Government Initiatives Are Helping Electricity Distribution—and Which Are Blocking It?

State Policies

These days, it’s hard not to hear about German energy policy in the news. Headlines such as: 

How the Ukraine war is accelerating Germany’s renewable energy transition

can be found everywhere. Yet, if you’ve really been paying attention—German energy policy has been making headlines this entire century.

In 2000, Germany launched the first German Feed-in Tariff (EEG)—with the aim of promoting the production of renewable energy. The EEG served to promote renewable energies in order to increase the share of renewable energy in the electricity mix and produce no greenhouse gas emissions.

The guaranteed electricity price and connection to the grid incentivised ordinary citizens and communities to invest in smaller scale solar, biomass, and wind generation for their homes and local areas.

However, the rapid expansion of renewables also caused the EEG surcharge to rise considerably until 2014. Hence, the tariffs came to an end in 2020. Yet, many still look at the legislation as a sparkling success. Within 14 years (2000–14), renewables—wind, solar panels, biomass, hydro power, and some geothermal—were contributing around 25% to gross electricity consumption. 

In fact, by 2012, Germany had the following installed capacity from renewable sources:

• Photovoltaics (Solar Panels): 33,000 Megawatts (MW) 
• Onshore Wind: 31,000 MW 
• Biomass: 7,500 MW
• Hydropower: 5,600 MW 
• Offshore Wind: 435 MW 
• Geothermal Power: 12 MW 

These installations produced 143 TWh (terawatt-hours, a unit of energy equal to one trillion watt-hours.of electricity), equivalent to the electricity generated by 13 nuclear power plants. Of the 17 nuclear power plants formerly in operation in Germany, eight have now been taken off the grid.

German energy policy is quite a well-known example, but electricity distribution companies—and average citizens—across Europe are subject to various state policies designed to ensure reliable, affordable, and sustainable energy supply. Other policies include regulations on the use of fossil fuels or the promotion of electric vehicles.  

Government Initiatives

In recent years, the EU has also taken several steps to ensure that electricity distribution companies are able to operate in a safe and efficient manner. These initiatives have been put into place with the goal of improving energy efficiency and consumer protection across Europe’s grid networks.

As part of these efforts, the EU has implemented various initiatives for electricity distribution companies, including the following developments:  

• Network Codes: The EU has developed a set of Network Codes that set out technical rules and requirements for the operation of electricity transmission and distribution networks. These codes cover topics such as grid connection requirements, network planning, and the management of network congestion—ensuring that electricity distribution companies can operate in a safe and efficient manner.
• Safety Regulations: Establishing clear rules for electrical safety, emergency response planning, and the maintenance of equipment and infrastructure is paramount. By setting minimum safety standards, the EU helps to ensure that electricity distribution companies are able to operate in a safe and reliable manner.
• Market Liberalization: By promoting competition and market efficiency, these EU policies encourage electricity distribution companies to operate more efficiently and effectively. This can lead to improved safety and reliability, as companies are incentivized to invest in new technologies and infrastructure to improve their operations.
• Renewable Energy Support Schemes: The EU has also established support schemes for renewable energy sources. This helps incentivize the development of new renewable energy projects—whilst also reducing the environmental impact of electricity generation and improving the efficiency and safety of electricity distribution networks.

With these measures in place, European countries can expect improved performance from their electricity distribution companies while at the same time increasing consumer safety and reducing environmental impact. It’s a classic win-win strategy.

Blockers

Everyone talks about high gas prices as the biggest problem facing the European energy sector—but other problems are currently at play as well, including:

• High coal and carbon prices
• Low hydro availability
• Reduced availability from the aging French nuclear fleet

Many other factors are affecting prices, but—within a context of growing electricity demand—one of the primary blockers facing European electricity distribution companies is the difficulty in achieving economies of scale.

In addition, Europe is also a diverse continent with a complex infrastructure, which means that electricity distribution companies often face significant challenges in trying to develop and maintain distribution networks that are both efficient and cost-effective. 

For example, in some parts of Europe, the population is spread out over a large geographic area, which can make it difficult and expensive to connect customers to the grid. In other areas, the existing infrastructure may be outdated or inadequate, which can require significant investment in order to modernize and upgrade.

Additionally, environmental regulations such as those mandated by the European Union’s Renewable Energy Directives can lead to additional compliance costs that further limit efficiency and profitability. Finally, there are concerns over cybersecurity and physical security with regards to potential hacking incidents and malicious actors attempting to disrupt power distribution networks. 

As Europe continues to transition towards more sustainable solutions and renewable energy sources, electricity providers must be vigilant in addressing these issues in order to remain competitive and reliable for their customers.

Aiming For More than Climate Neutrality 

Some say the European energy sector is in a state of flux—whilst others think it’s just a hiccup. Either way, the EU has very ambitious energy plans, including the 2030 Climate Target Plan—which proposes to raise the EU’s targeted greenhouse gas emission reductions to at least 55% below 1990 levels by 2030.

This is a huge increase compared to the existing target—but it doesn’t stop there. The European Green Deal (EGD)  is aiming to turn Europe into “a modern, resource-efficient and competitive economy”—with the following goals: 

• Net-zero greenhouse gas emissions by 2050
• Economic growth decoupled from resource use
• “No person and no place left behind”

The road to net-zero

Technology plays an important role in this shift—providing new ways to produce, store, and use energy more efficiently. In the coming years, technology will become increasingly important in helping the European energy sector meet its goals for reducing emissions while maintaining reliable power supplies. 

As renewable technologies continue to develop and become more cost-effective, they will be adopted on a larger scale across Europe’s electricity grids and heat networks. Additionally, digitalization technologies such as Artificial Intelligence (AI), information and communications technology (ICT), and the Internet of Things (IoT) are enabling smarter operations that can reduce costs while improving efficiency.

This rapid digital transformation promises to revolutionize the way Europeans access and consume energy in the future—and hopefully will lead to a successful shift away from fossil fuels and will help the EU become climate-neutral by 2050.

Use Cases—Delivering Consistent Day Ahead and Intra-Day Forecasts for Electric Distribution Companies

So far—from regulation to market structures—you’ve seen the state of the European Electricity market. Now, let’s take a look at some practical examples of the ways companies can navigate through this complex climate. 

The EDF (Électricité de France) Group—with €143.5 billion in sales and 431.7 TWh of electricity generated annually—has stated that their raison d’être is to build a net zero energy future with electricity and innovative solutions and services.

In fact, like the EU, EDF aims for CO₂ neutrality by 2050. Électricité de France—as well as other electricity producers—requires updated daily and even hourly forecasts of electricity demand and supply.

So—how does a top global electricity supplier like EDF deliver accurate daily forecasts for electricity demand and supply. It, as you might imagine, starts with their data.

EDF uses data to:

• Identify potential points of failure
• Direct new investment  
• Ensure reliable electricity for customers

Electricity demand depends on a number of external factors, including:

• Time of day
• Day of year and day of week 
• Temperature
• Holidays and school closings
• Tourist events

EDF then models electricity demand by combining their electricity demand data with temperature and calendar data. 

In Turkey, IC İçtaş Energy needed to get daily electricity predictions into EPİAŞ (a regulatory agency) and be ready to match supply and demand for the next day’s sell orders. IC İçtaş Energy chose ML Studio for their daily electric consumption predictions.

The result? Before using ML Studio for daily electric consumption predictions, their error rate was as high as 14–15%. Now, the error rate of IC İçtaş Energy has dropped to as low as 3%.

As you can see, accurate day-ahead and intra-day forecasts are essential for electric distribution companies to effectively manage their operations. Forecasting helps the companies plan ahead, anticipate changes in demand, and optimize resource allocation. This can help reduce costs while ensuring reliable power supply to customers. 

Additionally, forecasting also provides valuable insights into customer usage patterns— which can be used to develop better services and products that meet their needs. Consistent forecasting also allows electric distribution companies to meet customer demands more efficiently by providing a steady supply of electricity during peak times. 

In short, accurate day ahead and intra-day forecasting helps electric distribution companies save money while delivering reliable service to customers. In the same vein, ML Studio offers solutions for electricity demand forecasting through AI modeling by using internal counter-based consumption data together with external data. 

ML Studio democratizes AI by making it accessible for your organization to solve real-world energy problems—such as renewable energy sources production forecasting—with a robust and ready-to-use End-to-End AI platform that doesn’t go off budget.

Get in touch for a personal demo.